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ACCA Applied Skills · Performance Management · Planning and operational variances

Marsh Co uses a revised standard labour rate of $14 per hour. For the period, 5,200 hours were paid at $14.50 per hour, of which 300 hours were idle. The revised standard allowed 4,800 hours for the actual output. What is the labour efficiency variance (operational)?

The operational labour efficiency variance is $1,400 adverse. Only the 4,900 hours actually worked count, not the 5,200 paid, because idle time is a separate variance. Against 4,800 revised standard hours, the 100 excess hours are valued at the revised standard rate of $14.

  1. A$1,400 adverseCorrect
  2. B$5,600 adverse
  3. C$1,450 adverse
  4. D$1,400 favourable

Explanation

Hours actually worked = 5,200 − 300 = 4,900. Efficiency variance = (4,800 − 4,900) × $14 = $1,400 adverse. Using hours paid gives $5,600, which wrongly includes idle time. Using the actual rate gives $1,450, which is the wrong rate. Check: idle $4,200 A + rate $2,600 A + efficiency $1,400 A = $8,200 A = $75,400 − $67,200.

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